Avon Products Inc. (AVP), the world’s largest door-to-door cosmetics seller, fell the most since 1999 after saying U.S. regulators began a formal probe of its foreign operations and are investigating its dealings with analysts.
The U.S. Securities and Exchange Commission issued a subpoena yesterday seeking information about communications with financial analysts starting last year, New York-based Avon said today in a filing. The SEC also began formally investigating Avon’s international operations. The company said it is cooperating with the investigation.
The disclosures came as Avon, led by Chief Executive Officer Andrea Jung, reported third-quarter net income that fell more than analysts estimated and said it no longer expects to meet its forecast for sales growth this year. The results marked the fourth time in five quarters profit trailed projections.
“Current management has lost investor credibility and is unlikely to enact meaningful operating improvements anytime soon,” Mark Astrachan, a Baltimore-based analyst for Stifel Nicolaus & Co. wrote in a note today downgrading Avon shares to “hold” from “buy.” “The substantially stepped-up SEC woes makes it increasingly difficult for management to focus on a turnaround.”
Avon sank 18 percent to $18.81 at the close in New York for the largest drop since Sept. 29, 1999. The shares had declined 21 percent this year before today.
Jennifer Vargas, a spokeswoman for Avon, declined to comment beyond the company’s statements today. John Nester, an SEC spokesman, declined to comment on the agency’s subpoena.
The company is assessing its long-range business plan and looking at the viability of each market, Jung, who’s been CEO since 1999, said on a conference call today with analysts.
“We got a lot of work cut out for us over the next several months,” she said.
The company in 2008 began investigating its Chinese operations’ compliance with the Foreign Corrupt Practices Act, which outlaws bribing foreign officials. That led to the firing of four executives in May and expanding the probe to other countries.
Net income fell to $164.2 million, or 38 cents a share, from $166.7 million, or 38 cents, a year earlier, the company said in a statement. Analysts projected 46 cents a share, the average of 13 estimates compiled by Bloomberg.
Total sales, excluding fluctuations in currency prices, rose 1 percent in the third quarter as consumers fought persistently high unemployment and the threat of another recession. Avon gets more than 80 percent of its revenue from outside North America.
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